Transport Ins. Co. v. Faircloth

• Decision Date: 15 June 1995
• Docket Number: No. D-4059,D-4059
• Citation: 38 Tex.Sup.Ct.J. 424,898 S.W.2d 269
• Parties: 38 Tex. Sup. Ct. J. 424 TRANSPORT INSURANCE COMPANY, Lindsey & Newsom Claim Services and Janet E. Jones, Petitioners, v. Paula Trippel FAIRCLOTH, Respondent.
• Court: Texas Supreme Court

Page 269

898 S.W.2d 269

38 Tex. Sup. Ct. J. 424

TRANSPORT INSURANCE COMPANY, Lindsey & Newsom Claim Services and Janet E. Jones, Petitioners, v. Paula Trippel FAIRCLOTH, Respondent.

No. D-4059.

Supreme Court of Texas.

Argued Sept. 22, 1994.

Decided March 30, 1995.

Rehearing Overruled June 15, 1995.

Arthur K. Smith, Dallas, for petitioners.

Steven Troy Roper, George Chandler, David Porter, Lufkin, L. Brent Farney, San Antonio, John E. Kinney, Woodville, William W. Kilgarlin, Santa Fe, NM, Jeffrey B. Bates, Lufkin, Harold Martin, Bellaire, Ann C. Lang, Houston, for respondent.

GONZALEZ, Justice, delivered the opinion of the Court, in which PHILLIPS, C.J., and HECHT, CORNYN, ENOCH and OWEN, JJ., join.

In this case, we decide whether there is any evidence of an actionable violation of the Texas Insurance Code, the Deceptive Trade Practices-Consumer Protection Act (DTPA), or common-law duties in connection with an insurer's negotiation of a settlement with a minor. Paula Trippel Faircloth sued Transport Insurance Company, Lindsey & Newsom Claim Services, and Janet Jones (collectively, Transport) for their alleged misconduct in procuring the settlement of her claim against Allied Van Lines. After a jury trial, the trial court rendered judgment for Faircloth based upon violations of Article 21.21 of the Insurance Code. The court of appeals affirmed. 861 S.W.2d 926. For the reasons stated herein, we reverse the judgment of the court of appeals and render judgment that Faircloth take nothing from these petitioners.

On May 18, 1984, Marvin and Judith Kervin were killed when an Allied Van Lines tractor-trailer crossed the center line and struck their pickup truck. Facing almost certain liability and potentially large damages, Allied's insurer, Transport, desired to settle any potential claims arising from this accident as quickly and cheaply as possible. ¹ Within hours of the accident, Jones, an adjustor for Lindsey & Newsom Claim Services acting on instructions from Transport, was investigating potential claims. Acting under the belief that 15-year-old Faircloth (then Paula Trippel) was the daughter of Judith Kervin and the step-daughter of Marvin Kervin, representatives of Transport sought to settle her claim against Allied.

Almost immediately after the accident, a family friend of the Kervins, Reverend Troy Caldwell, took steps to be appointed Faircloth's guardian. ² He hired Mike Askins, an attorney, to open the guardianship. On May 22, 1984, Askins opened the guardianship for Faircloth, and Caldwell was named as her guardian. Within one month of the collision, they settled Faircloth's claim against Transport's insured for $250,000. The probate court approved the settlement and awarded one-third of the settlement to Askins for his fee, and two-thirds to Caldwell as Faircloth's guardian.

Upon reaching majority, Faircloth sued Transport, Lindsey & Newsom, Jones, and Caldwell alleging that they had, individually and in conspiracy with each other, defrauded her of the true value of her claim. Transport responded that Faircloth defrauded it by leading its representatives to believe that she was Judith Kervin's daughter, when in reality she was not her natural or adopted child, and as such, she had no right to collect for the woman's death. Transport concluded that since Faircloth had no standing to sue its insured the settlement was actually a windfall for her, and that Faircloth suffered no compensable injury as a result of Judith Kervin's death or of Transport's actions.

The trial court submitted the case to the jury on multiple theories, including breach of a "duty of good faith," ³ breach of fiduciary duty, common-law fraud, civil conspiracy, and Insurance Code and DTPA violations. ⁴ Faircloth elected to recover under the Insurance Code and the DTPA. The trial court's judgment calculated the damages recoverable under all of her theories, but rendered judgment based solely under the Insurance Code and DTPA. ⁵ The judgment included $602,625 to Faircloth for actual and "additional damages" and attorneys' fees, and also almost $75,000 in prejudgment interest. ⁶

On appeal, the court of appeals reformed the calculation of prejudgment interest and affirmed the judgment. The court of appeals determined that the jury findings constituted a determination "pursuant to law" that the defendants had committed a deceptive act or practice which was actionable under the Insurance Code and the DTPA. It also held that there was evidence that the defendants had engaged in a civil conspiracy, committed fraud, and breached a duty to deal in good faith with Faircloth. We first consider the basis of the trial court's judgment, the alleged violations of the Insurance Code and the DTPA.

I. Statutory Duty

Transport argues that there is no evidence of an actionable violation of the Insurance Code and the DTPA. Faircloth contends that she pleaded and proved a violation of Section 17.46(b)(23) of the DTPA, and that such a violation is actionable under the Insurance Code by any person suffering damage. ⁷ TEX. BUS. & COM.CODE § 17.46(b)(23); TEX.INS.CODE art. 21.21. We agree with Transport.

In Allstate Ins. Co. v. Watson, 876 S.W.2d 145 (Tex.1994), we determined the extent to which the Insurance Code gives standing to third parties having no contractual privity with an insurer. The Insurance Code provides standing to "any person who has sustained actual damages" as a result of conduct prohibited by Section 17.46 of the DTPA. See TEX.INS.CODE art. 21.21, § 16. To be actionable under Section 17.46 of the DTPA, the insurer's wrongful conduct must appear as an unfair or deceptive act or practice in either Section 4 of Article 21.21 or in the rules and regulations of the State Board of Insurance adopted under Article 21.21. See Watson, 876 S.W.2d at 147.

Article 21.21 expressly makes actionable those acts or practices defined in Section 17.46 of the DTPA as unlawful deceptive practices. Watson, 876 S.W.2d at 149. Section 17.46(b)(23) makes unlawful "the failure to disclose information concerning goods or services which was known at the time of the transaction if such failure to disclose such information was intended to induce the consumer into a transaction into which the consumer would not have entered had the information been disclosed." TEX.BUS. & COM.CODE § 17.46(b)(23) (emphasis added). In this case, the trial court substituted the words "ordinary person" for "consumer" and omitted the terms "goods and services" in the jury charge. These substitutions were material, and Transport specifically objected to them.

An action pursuant to Section 17.46(b)(23) of the DTPA was not available to Faircloth because an insurer negotiating with a third party is neither inducing a "consumer" into a transaction nor withholding information concerning "goods and services." The DTPA defines a consumer as "an individual ... who seeks or acquires by purchase or lease, any goods or services." Id. § 17.45(4). The DTPA also defines the terms "goods and services." Section 17.45(1) defines "goods" as "tangible chattels or real property purchased or leased for use," and "services" as "work, labor, or service purchased or leased for use." Id. § 17.45(1)-(2) (emphasis added). We are bound to construe these terms in accordance with their statutory definitions. TEX.GOV'T CODE § 311.011.

Third parties negotiating a settlement with an insurer do not seek to purchase or lease any of the services of the insurer. They seek the proceeds of the policy. A party whose only relation to an insurance policy is to seek policy proceeds is not a "consumer." English v. Fischer, 660 S.W.2d 521, 524 (Tex.1983). Because there is no evidence that Faircloth is a consumer or that the information Transport allegedly withheld concerned goods or services as those terms are defined by the DTPA, we hold that there is no evidence of an actionable violation of the Insurance Code.

Transport next argues that there is no evidence that Faircloth had standing to recover for any "unconscionable course of conduct." ⁸ We agree. Faircloth's lack of consumer status disposes of this issue. Unconscionability is made actionable solely by Section 17.50(a)(3) of the DTPA. TEX.BUS. & COM.CODE § 17.50(a)(3). DTPA violations under Section 17.50, as opposed to Section 17.46, are not grounds for liability under the Insurance Code. Watson, 876 S.W.2d at 149. In addition, actions under Section 17.50 are only available to consumers. Compare to TEX.INS.CODE art. 21.21, § 16 (providing standing to "any person" who suffers injury resulting from acts or practices prohibited by Section 17.46 of the Texas Civil Practices and Remedies Code). Because Faircloth was not a consumer, she lacked standing to pursue an unconscionability claim under Section 17.50(a)(3) of the DTPA.

The jury's finding that Transport acted "knowingly," for which the trial court assessed "additional damages," was conditioned on affirmative responses to the questions about Faircloth's Insurance Code and DTPA claims. Since she did not prove any actionable violation, the jury's answers to the questions concerning additional damages must be disregarded. In addition, the jury's award of attorneys' fees must be disregarded because the Insurance Code and DTPA grounds of recovery supporting the award fail. Therefore, we reverse the trial court's judgment erroneously premised on the Insurance Code and the DTPA.

However, our inquiry does not stop there. Faircloth also received favorable responses from the jury on several common-law theories: fraud, civil conspiracy, breach of a fiduciary duty, and breach of the common-law duty of good faith and fair dealing. When a jury returns favorable findings on alternative theories, the prevailing party may seek recovery under an alternative theory if the judgment based on one theory is reversed on appeal. Boyce Iron Works v. Southwestern Bell Tel. Co., 747 S.W.2d 785, 787 (Tex.1988). Therefore, we must...